On the whole, the credit card industry is losing its return on equity. In 1990, credit card providers, as a whole, were making about three percent return on assets after tax. Just eight years later, the return on equity was little more than one percent. During the same period of time, the number of credit card providers in the marketplace shrank from about 6,000 to only about 3,000. Thus, there are fewer and fewer players with lower and lower return on assets, and the trend appears likely to continue in the future. Credit card providers make revenue and have expenses that are primarily associated with three types of costs: cost of funds, cost of losses (bad debts), and operating costs. During the current period, the revenue of credit card providers continues to decline. In 1990, a consumer could obtain a credit card as long as he or she was willing to pay an interest rate of, for example, 19.8 percent with a $20 annual fee. Eight years later, there were a wide variety of prices, and the return on assets from the revenue that credit card providers were receiving continued to decline. Concurrently, the marketing to offer new credit cards to consumers increased from 500 million in 1990 to over three billion pieces of mail in 1997. This expansion of available credit for consumers added to mounting bad debt problems in the industry and record numbers of consumer bankruptcy filings.
Therefore, in order to make money, it is necessary for credit card providers to devise a way to lower infrastructure cost. A credit card provider has little control over its cost of financing. Therefore, the credit card provider must look at operating cost and endeavor to think creatively on how it can reduce such costs in order to give itself a strategic cost advantage. One possible way to reduce cost is to reduce the level of customer service, which would likely create dissatisfied customers. A far more attractive way to reduce cost is to leverage services over a bigger infrastructure, for example, by combining billing with multiple providers of goods and/or services. An attractive market to target is industries that provide recurring services, and statements, to the consumer. These are industries such as telephony, insurance/annuities, cable/pay television, the energy markets (gas, water, and electricity), and home security. Service providers such as energy companies are shifting to a deregulated industry like that of the airline, financial and long distance telecommunications industries. Customers are able, or will be able, to choose from a wide variety of marketing entities which will provide their electricity. This choice encourages energy service companies to add value to their offering by lowering cost and developing new products and services and, in a sense, competing to be a full home services provider.
The electric and utility industries have annual revenues which exceed the yearly revenue of the long distance telecommunications industry and the local phone market, and these industries together have combined revenues that come close to rivaling the overall sum spent on all general purpose credit cards. Proposed deregulation includes, for example, the creation of non-profit corporations in charge of buying power from current monopoly power companies and for monitoring the transmission of power throughout a state, as well as the restructuring of utility companies to become local power distribution companies. In other words, under proposed deregulation, energy companies move away from vertical integration and divide the functions of generation (i.e., managing power plants to produce electricity); transmission (i.e., moving electricity from the power plant to the factory, office, or home); distribution (i.e., retailers marketing to the public); and marketing (i.e., selling electricity and the services associated with it to end users and maintaining the customer relationship). Similar to other deregulated industries, increased market competition and the ability for customers to select from multiple energy providers poses a great risk for energy companies, for example, in loss of share and increased losses. Deregulation opens opportunities for credit card providers, as well as for energy providers. Credit card providers increased overall card usage from 11% of all transactions in 1980 to 17% in 1998. Utility payments provide another way of increasing that percentage.
In fact, it is estimated that the market size of the recurring bill market rivals the one trillion dollars spent annually on all credit cards in the U.S. There is a current need to provide a computerized system for combined billing of multiple vendor statements for a customer—for example, telephony, energy, cable, water, home security, and gas—on a single statement, in order to take advantage of the recognized competencies of credit card providers for marketing, receivable management, risk management and statementing, to reduce those risks to the recurring bill providers.